The Green Deal Will Make or Break Europe

The European Union's new leadership has decided to invest much of its political capital in a plan to position Europe as the global leader in the transition to a carbon-neutral economy. But if too many constituencies feel as though they are being sacrificed on a green alter, the plan will never even get off the ground.

BERLIN – European Commission President Ursula von der Leyen’s ambition to lead a “geopolitical commission” is about to face its first big test. European heads of state are meeting to discuss her proposed European Green Deal, a sweeping project that could either unite the European Union and strengthen its position on the world stage, or generate a new intra-European political cleavage that leaves the bloc fractured and vulnerable.

The need for concerted action is clear. The Green Deal is a response to accelerating climate change, which poses an existential threat not just to Europe but to the entire planet. The problem does not observe national borders, and thus requires collective global action. But the transition to a carbon-neutral economy also offers far-reaching opportunities. With the right strategy in place, Europe can boost its own technological innovation and deploy carbon pricing and other fiscal policies to protect European labor markets from being undercut by lower-cost production in China and elsewhere.

Moreover, through the European Investment Bank, the EU already has a tool for mobilizing massive stores of capital for investments in infrastructure, research and development, and other essential areas. And, as Adam Tooze has argued, by issuing green bonds and other “safe assets,” Europe can secure greater economic independence from other powers and start to establish the euro as a global currency.

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"The only way to shepherd the Green Deal to successful implementation will be to offer large fiscal transfers to the laggards, so that they, too, will have a stake in the clean-energy transition."

I believe this is absolutely correct, for all the reasons stated. It is also the element missing in the recent and also very good article by Jeffrey Sachs. Sachs and colleagues estimate that the cost of becoming roughly carbon-neutral by 2050 is a 1-2% GDP annual expenditure. And even this is considered an enormously daunting barrier in terms of political will. But the 1-2% is relative to the GDP of a wealthy country like US or Germany. For mid-level-wealth industrialized countries, and especially developing countries (South Asia?) who in fact have the biggest human need for increasing their access to energy, the %-of-GDP figure, and thus the political resistance, would be proportionally higher.

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Mass protests over racial injustice, the COVID-19 pandemic, and a sharp economic downturn have plunged the United States into its deepest crisis in decades. Will the public embrace radical, systemic reforms, or will the specter of civil disorder provoke a conservative backlash?

For democratic countries like the United States, the COVID-19 crisis has opened up four possible political and socioeconomic trajectories. But only one path forward leads to a destination that most people would want to reach.

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